How AngelList is reinventing the future of startups

Business Model Innovation

Business Model Shifts

Design Thinking

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In this blog we will tell you all about AngelList and how they used platform thinking to successfully connect startups with investors, from a clear vision and with the intention of making investing possible for everyone.

The start: ‘Radioactive mud’

Meet Naval Ravikant: in 2005 called the ‘radioactive mud’ of Silicon Valley. VC’s hated him for standing up against the power of VC’s by suing some of the biggest VC’s for wrong doing. He did this because he had a pain: he lost all the shares of his company because of too little knowledge and awareness of the funding world. Therefore, he was fooled by VC’s when selling his company and ended up with nothing.

He realized the information and power was at investors but should be at entrepreneurs, to make them less vulnerable of being fooled around.

Venture hacks blog

Naval decided to do something with the deep-rooted knowledge he gained about the mechanics and the rules around fundraising. Therefore, he started the Venture Hacks blog in 2007, together with co-founder and fellow Silicon Valley entrepreneur Babak Nivi. Venture Hacks explained in detail how venture capital works, how to negotiate term sheets, which sections matter etc. All details a startup should know about when thinking about investments.

After a few years blogging for loads of startups, they discovered something else. The big AHA moment was: there is no connection point between startups and angel investors!

Ravikant and Nivi got a lot of requests from entrepreneurs who wanted a connection with angel investors and vice versa. That’s when they said: just List these Angels online. AngelList was born: a list with at first 25 angels that were informed about new tech startups in need of seed funding. And finally in 2010, with a list of 50 Angel Investors who were willing to invest $80 million (!) that year in startups; Naval launched AngelList!

Previously, most of the information and opportunities that can be found on AngelList was only accessible to founders or investors with very strong established networks (the old boy’s network), but AngelList democratized that information, making it much easier to get started both as an entrepreneur and as an angel investor.

No chicken and egg problem

What you often see when a platform is built, is that there is a chicken and egg story. You have to build your database before you can launch so you will have enough demand and supply. But when you launch and the word starts to spread, you build the database. This chicken and egg story was not the case here. Because of the Venture Hacks blog, they had the potential client base for both investors and startups already in place ánd already knew the needs of the startups. Also, they had built the credibility and track-record as experts in the funding world.

This credibility was further enhanced when Navikant lobbied for the Jumpstart Our Business Startups (JOBS) act. This JOBS act made it easier for people to invest in startups and it was logical for America, because everyone wants the American Dream. So it should be easy to invest and allow fellow Americans to pursue this dream.

With the JOBS Act in place, AngelList had all the tools to be able to grow fast, and it did. While it started with many, many startup requests in 2010 and 50 angels that were willing to invest $80 million, it now has 75.000 startups and 50.000 accredited investors listed, with a deal flow of $200 million per year!

AngelList’s clever infrastructure: Syndicates

The infrastructure where AngelList is based on has something in it for everyone. It is based on Syndicates: a service that gets right in the middle of financial transactions. It enables luminary investors to collect investor followers and funnel their capital into attractive startups. Ravikant describes the syndicates as, “Micro-VCs with no fees, no lockup, and the leads having real skin in the game.”

Syndicate leads–who include Tim Ferriss, Jason Calacanis, and Path founder Dave Morin–get to leverage their influence and can make more impact with their investment because other investors chip in too. This syndicate leader is the human filter, the curator, so as a small investor you don’t have to worry about what will be the next booming startup in your industry. He does the work for you and in return takes a ‘carry’ on the profits from all successful deals.

Smaller Investors, the followers, get access to a lead’s investments and benefit from their experience in picking and managing investments. Investors can also invest as little as $1K. So now every American can be part of the American dream!

Startups get more capital with fewer meetings. Startups should be busy with customers and their proposition so meetings with investors is a waste of time. With AngelList, they have access to the whole syndicate investors’ network while only having to talk with the syndicate leader. Also, it’s easy to collect many small investments.

Accredited investors

Investors don’t have to worry about their investment because Syndicate leaders are accredited and have the track record. AngelList makes sure mutual trust is in place and startups cannot be fooled around with by accreditation of both investors and startups.

The first business model of AngelList can be found below, where you can clearly see how they use platform thinking: angels and startups are allowed to connect, interact and create and exchange value.

AngelList vs. other platforms

The beauty of the Angellist platform is that it makes investing easy. Even families can become an investor because the Syndicate leads are the gatekeeper. At Airbnb, you can connect producers and consumers easily because everyone knows how to book a room. With investing, this is a different story. You need people with knowledge of and experience in investing. Plus someone that keeps track of all the hot new startups. They solved this in a clever way by creating the Syndicates. What you often see when companies are building a platform is that they make the fault of becoming a producer or consumer themselves instead of only providing the infrastructure. AngelList is not mingling with producers/consumers but is staying the connecting party that only provides the platform infrastructure.

When relating to other platforms, Ravikant describes AngelList as a way to connect parties who want to do business. “I think it’s a problem that LinkedIn wanted to solve but never quite got around to,” he says. “LinkedIn built the largest database of business people online but couldn’t actually get them to do business transactions with each other through LinkedIn.” He thinks AngelList is more like eBay or even dating site Match.com. “But we’re doing it for things that have value in the hundreds of thousands of dollars.”

AngelList platform: a nourishing base for reducing more pains

When the basis for the platform was set up by connecting investors with startups, and let them interact, the core interaction of the AngelList platform really worked. This is the nourishing base for addressing more pain points. It was logical and relatively easy to make the next step: a startup recruitment platform! In 2012 they launched their recruitment platform that helps startups recruit top talent. In late 2012 they added a portal for accelerators & incubators as well. In addition to the funding proposition, they now have 800-2000 hires a month.

Connecting producers and consumers

A platform is all about connection, knowing with whom you are dealing with and an easy connection when and where you want. This does AngelList well with the Angie app, where you can see in real time who is investing in which initiative and where you can chat with other startups/investors.

Global

Why only reduce pains for the American investors? Just make the whole world part of the American dream! Therefore, they shifted their motto from ‘where investors meet startups’ to ‘where the world meets startups’ and have launched in Europe, China and in India last year.

The current business model of the AngelList platform can be found below, where you can clearly see how they evolved their platform thinking into an ecosystem: an interconnected set of services that allow users to fulfill a variety of needs in one integrated experience.

What is the future?

Angellist keeps building on a global ecosystem for startups and investors. In a platform where you know everything about your participants, there is a lot of potential of effectively using data. That is why AngelList has recently added a premium service: A-list. They combined their participant data with external data in an algorithm for finding the 1% best talent in the world in one click, in real time. For the future, this could be further leveraged by giving you pro-actively all information on the best investing options, startups and talent whenever and wherever you want. Ultimately, the algorithm could invest or hire for you, based on your preferences, before you even know you need it.

Also, AngelList recently made the shift from only angel funding to including institutional funding by launching AngelList Platform Funds and Maiden Lane: the first online venture fund. As a result, larger funding options are possible and angels and VC’s can combine forces in one fund. Who would have thought Naval Ravikant would work together with VC’s to democratize the investment process?

Vision of Naval Ravikant:

Democratize the investment process and help startups with their challenges in fundraising and talent.

Concluding, Naval Ravikant started as a rebel in 2010 but he saw that a shift was needed and went for it. He did a great job of democratizing the investment process and others recognized this along the way. From the Silicon Valley ‘radioactive mud’ he has become a successful entrepreneur and now all VC’s want to work with him. Who knew the playing field could change that much in 10 years time?

Are you inspired and would you like to know more about platform thinking? Join our Exponential Business Models Design Workshop.